Title: Do expectations drive expectations: On the formation of consumer inflation expectations in the US
Authors: Tomasz Lyziak - Polish Academy of Science (Poland) [presenting]
Malgorzata Kalbarczyk - University of Warsaw (Poland)
Joanna Mackiewicz-Lyziak - University of Warsaw (Poland)
Abstract: Using a novel and unique dataset, the aim is to examine whether consumer inflation expectations in the US depend on expectations regarding other macroeconomic variables. Our results suggest that in order to understand consumer views on future inflation, it is necessary to consider their predictions concerning developments of other macroeconomic variables. Interestingly, expectations regarding fiscal policy appear relevant drivers of consumer inflation expectations, which, jointly with the confidence factor already suggested in the literature, explains the increase of those expectations after the beginning of the Covid-19 pandemics. We also demonstrate that consumers' self-assessments concerning the degree of risk-aversion and health explain differences in inflation expectations among consumers. After considering their subjective expectations and self-assessments, consumers appear to a large extent forward-looking, even if predictability of future inflation developments, as measured with official statistics, is limited. Also, the dependence of their inflation expectations on selected socio-demographic features, such as income, gender or age, is diminished.